EBK INTERMEDIATE MICROECONOMICS AND ITS
12th Edition
ISBN: 9781305176386
Author: Snyder
Publisher: YUZU
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Question
Chapter 17, Problem 17.2P
a
To determine
Expected utility from 4 gambles.
b)
To determine
Choice of gambling A or B
c)
To determine
Choice of gambling C or D.
d)
To determine
Comparison of choices in two scenarios.
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Suppose you have $35,000 in wealth. You have the opportunity to play a game called "Big Bet/Small Bet." In this
game, you first choose whether you would like to make a big bet of $15,000 of a small bet of $5,000. You then roll a
fair die. If you roll a 4, 5, or 6, you win the game and earn $15,000 for the big bet or $5,000 for the small bet. If you
roll a 1, 2, or 3, you lose and lose $15,000 for the big bet and $5,000 for the small bet
the
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Utility
U₂
U₁
BEL
0
11
LATE
EE
ARTE
Are the Small Bet and Big Bet considered fair bets?
O Big Bet is fair, but Small Bet is not.
No, both are not fair.
Yes, both are fair.
20
OSmall Bet is fair, but Big Bet is not.
G
HA
1
35
D
E
1
1
1
1
1
F
1
U
50 Income
(thousands
of dollars)
Suppose a person chooses to play a gamble that is free to play. In this gamble, they have a 10% chance of
$100.00, and a 90% chance of nothing.
Their utility function is represented in the following equation:
U=W 1/2 where W is equal to the amount of "winnings" (or the income).
Suppose now Brown Insurance Company offers the person the option of purchasing insurance to insure they will
win the $100. What is the minimum amount Brown Insurance would charge you to insure your win?
0.90
O. 99
01
O 10
Rita is playing a game of chance in which she tosses a dart into a rotating dartboard with 8 equal-sized slices numbered 1 through 8. The dart lands on a
numbered slice at random.
This game is this: Rita tosses the dart once. She wins $1 if the dart lands in slice 1, $2 if the dart lands in slice 2, $5 if the dart lands in slice 3, and $8 if the
dart lands in slice 4. She loses $3 if the dart lands in slices 5, 6, 7, or 8.
(If necessary, consult a list of formulas.)
(a) Find the expected value of playing the game.
| dollars
(b) What can Rita expect in the long run, after playing the game many times?
O Rita can expect to gain money.
She can expect to win
dollars per toss.
Rita can expect to lose money.
She can expect to lose dollars per toss.
O Rita can expect to break even (neither gain nor lose money).
Chapter 17 Solutions
EBK INTERMEDIATE MICROECONOMICS AND ITS
Ch. 17.3 - Prob. 1MQCh. 17.3 - Prob. 2MQCh. 17.3 - Prob. 1.1MQCh. 17.3 - Prob. 1.2MQCh. 17.3 - Prob. 2.2MQCh. 17.3 - Prob. 1.3MQCh. 17.3 - Prob. 1TTACh. 17.3 - Prob. 2TTACh. 17.4 - Prob. 1TTACh. 17.4 - Prob. 2TTA
Ch. 17.4 - Prob. 1.1TTACh. 17.4 - Prob. 2.1TTACh. 17.4 - Prob. 1MQCh. 17.4 - Prob. 1.2TTACh. 17.4 - Prob. 2.2TTACh. 17.5 - Prob. 1MQCh. 17.5 - Prob. 2MQCh. 17.6 - Prob. 1TTACh. 17.6 - Prob. 2TTACh. 17 - Prob. 1RQCh. 17 - Prob. 2RQCh. 17 - Prob. 3RQCh. 17 - Prob. 4RQCh. 17 - Prob. 5RQCh. 17 - Prob. 6RQCh. 17 - Prob. 7RQCh. 17 - Prob. 8RQCh. 17 - Prob. 9RQCh. 17 - Prob. 10RQCh. 17 - Prob. 17.1PCh. 17 - Prob. 17.2PCh. 17 - Prob. 17.3PCh. 17 - Prob. 17.4PCh. 17 - Prob. 17.5PCh. 17 - Prob. 17.6PCh. 17 - Prob. 17.7PCh. 17 - Prob. 17.8PCh. 17 - Prob. 17.9PCh. 17 - Prob. 17.10P
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